generally accepted accounting principles
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Generally Accepted Accounting Principles (GAAP)TRANSCRIPT
Generally Accepted Accounting Principles
Prepared by:Armocilla
LugayEscarillaMadrigalRamosTobias
2H2
Ms. Lolita Pujol
Generally Accepted Accounting Principle (GAAP)
• Rules that govern how accountants measure, process and communicate financial information
• Ensures that consistent accounting procedures are followed in recording the events created by business transactions and in preparing financial statements
Generally Accepted Accounting Principle (GAAP)
• The Business Entity Concept
• The Continuing Concern Concept
• The Time Period Concept• The Consistency Principle• The Principle of
Conservatism• The Objectivity Principle
• The Materiality Principle
• The Monetary-unit Concept
• The Full Disclosure Principle
• The Cost Principle• The Revenue
Recognition Convention• The Matching Principle
The Business Entity Concept
• From an accounting standpoint, the business firm is
treated as a separate economic entity
• Only the business entity’s activities and transactions
should be recorded and reported
• The personal activities of the owner(s) and other
business entities are accounted for separately, unless
the activities have direct impact upon the business firm
The Continuing Concern Concept
• Recognizes that a firm will remain in operation
for the foreseeable future
• The firm is expected to continue to operate
long enough to meet its obligations and fulfill
its plans
The Time Period Concept
• Recognizes that timely financial reports must
be made to those who need the information
in these reports
• Can be monthly, quarterly or annually
• The year is the basic time unit
The Consistency Principle
• States that once an accounting method has
been adopted, it should be consistently
followed from period to period in order for
accounting information to be comparable
The Principle of Conservatism
• Holds that when equally correct accounting
alternatives are available for recording or reporting a
transaction, the accountant should select the
alternative that will result in least favorable outcome
for the business in the current period
• Minimize any overstatement of assets and income
and understatement of liabilities
The Objectivity Principle
• States that all business transactions must be
supported by objective evidence proving that the
transaction did in fact occur
• When independent evidence is not available to
document the results of a business transaction,
estimates must be made
The Materiality Principle
• States that material events must be accounted
for according to accounting rules
The Monetary-unit Concept
• Holds that business transactions must be
recorded and reported in terms of money
• Peso is the monetary unit in the Philippines
The Full Disclosure Principle
• Requires that the financial statements of a business
should be complete and should report sufficient
economic information relating to the business
entity to make the statements understandable
• Information may be: financial statements or
supplementary attachments
The Cost Principle
• Holds that most assets and liabilities are
recorded at their transaction cost
• Provides an objective and verifiable basis for
the initial recording of assets and liabilities
The Revenue Recognition Convention
• States that revenue resulting from business
transactions should be recorded only when a
sale has been made or earned
The Matching Principle
• Requires that the entity’s operational efforts
(expenses) be matched to the entity’s
operational accomplishments (revenues)
• States that all expenses must be recorded in
the accounting period as the revenue which
they helped to generate
The Matching Principle
2 Accounting Methods for determining where to record the result of a business transaction:– Cash Accounting• Records the result of business transactions only when
cash is received or paid out
– Accrual Accounting• Adjusts the accounting records by recording expenses
which re incurred during an accounting period but which are not actually paid until the following period; already earned but not yet collected
Reference/s
• Accounting for Hotels and Restaurants: A User
Perspective (2007) by Ma. Elenita Balatbat
Cabrera, pages 50-54